This from Money Morning:

The Chinese word for crisisis weiji.

But get this – when translated literally, wei means danger and ji means opportunity.  So to the Chinese, a crisis – or danger – represents an opportunity.

Of course, you don’t have to actually speak Chinese to understand what this mindset means for investors.

What you’re seeing in China today is nothing less than the classic definition of a crisis presenting the profit opportunity of a lifetime.

While investors in U.S. markets are mostly concerned about saving their necks, China has been stacking the deck in favor of those who have the guts to pull the trigger on the most undervalued market in memory.

Here’s why you should consider taking an early position in China in 2009.

The Mother of All Stimulus Plans

While it’s not old news, the current crisis in U.S. financial markets is all too familiar.  The Standard & Poor’s 500 Index is down almost 40% from its 52-week high and there seems to be no end in sight.

Worse, the malaise encompassing the United States has clearly spread to the rest of the world, including China.

So it appears that what investors once considered to be the greatest investment opportunity of our lifetime has imploded – just another financial black hole where portfolios go to die.

Truth be told, however, there is ample evidence that China’s economy and markets will weather the storm and ultimately thrive in the year ahead.
The Chinese economy has been the fastest growing in the world for the last three decades, averaging double-digit growth for the last seven years.  And while the credit crisis has slammed on the brakes in terms of growth in the West, China is still on track for a solid 8% growth in 2009.

But the Red Dragon isn’t about to take any chances.  With $2 trillion in foreign exchange reserves available, China can increase the growth rate of its economy – even as it works to boost economic recovery efforts elsewhere in the world.

And that’s just what it’s about to do.

The People’s Republic of China has already announced a $586 billion (4 trillion yuan) spending package.  To put that in perspective, this plan amounts to a staggering 20% of China’s gross domestic product (GDP).  Compare that to the $1 trillion in U.S. bailouts, which equate to about 8% of GDP.

And China’s reserves won’t be doled out in dribs and drabs. The plan calls for spending the whole amount in just a few years.

To further grease the recovery skids, China has reduced interest rates five times in the last three months, and loosened lending rules.  Now China’s banks are perfectly positioned to get the ball rolling, flush with cash from a world-leading savings rate of 35%.  And because they are state-owned, the cash will flow quickly from the banks to government projects.

The convergence of the recent market swoon and the stimulus plan means you now have the opportunity to buy great companies at the dawn of the Chinese century.

But specifically, where should you look to park investment capital in the Chinese market?

Well, there are solid plays across all spectrums of China’s economy, but the best are in infrastructure, consumer goods and energy.

Infrastructure Paves the Way to Profit

The first place to look is infrastructure development, which has been the main engine of China’s explosive growth over the past two decades.

While most believe China’s economy is export driven, statistics show public works spending accounts for 4%-6 % of the country’s GDP growth. From 2007-2010, China will spend a whopping $725 billion on infrastructure improvements in a race to accommodate its rapidly migrating populace.

By 2030, 1 billion of its people will live in cities, up from 600 million today.  About 170 mass-transit systems will be needed.  Another 40 billion square meters of floor space will be built in 5 million buildings – 50,000 of which could be skyscrapers.

And all of these developed regions will be connected by new roads. Shorter transport times drive down costs, and smooth the transition to city living for China’s exploding middle class.

Plans for China’s road system call for 12 major routes across the country from north to south and east to west connecting millions to new routes of commerce, according to The Wall Street Journal.  The system will stretch 53,000 miles by 2020, surpassing the 47,000 miles of roadways in the United States.

It will take massive amounts of steel, cement, and bulk transportation to build those roads.

Money Morning Contributing Editor Martin Hutchinson believes one big winner from the infrastructure boom will be Vale (ADR:RIO) the world’s largest producer of iron ore. As the world’s leading producer and consumer of steel, China is also the world’s leading importer of iron ore, which – along with coking coal – is a key component in steel production.

And while prices and demand for Chinese steel fell sharply in the second half of 2008, they are already beginning to pick back up.

In fact, steel production in the Chinese city of Tangshan, in the Hebei province, has risen to more than 70% of capacity as companies resumed output after prices stabilized, the Tangshan Evening News reported Dec. 26. About 39 out of 57 iron and steel factories in Hebei, China’s biggest steel-producing province, are operating now, compared with 25 in August.

Tangshan is an industrial-level city in that steel-rich region.

“The iron-ore stocks have been overly poorly treated in the past couple of months with all the fear over China,” Michael Heffernan, a client adviser with Austock Securities Ltd., told Bloomberg News.

“Negativity over the Chinese situation is overdone,” Heffernan added. “In the past couple of months the Chinese may have been posturing to get the best possible deals they could when negotiations over contract prices reopen.”

That’s good news for Vale, which looks attractive with a Price/Earnings (P/E) ratio of only 8.6.

A big source of China’s iron-and-steel demand has to do with the country’s commitment to railroads. A full $100 billion of the stimulus package will be spent on rail services.

That makes Guangshen Railway Co. Ltd. (ADR:GSH) a good play.

Guangshen Railways is the biggest rail operator in China with cargo and passenger operations between Guangzhou and Shenzhen, as well as Hong Kong.

There is an acute shortage of rail capacity to carry raw materials from China’s western provinces to manufacturing centers on the Red Dragon’s East Coast. Right now, cargo capacity is only 35% of demand, according to the Chinese Railway Ministry.

That helped revenue at this $94 billion company to jump 17% in the first three quarters of 2008, despite a crippling snowstorm in January.  Guangshen also yields about 3%, rewarding investors who are willing to hold the shares as they wait for the stimulus to kick in.

China’s Urban Migration and Growing Consumer Class

The opening of new highways is providing greater mobility to China’s population, accelerating the massive move from the hinterlands to the cities. Incredibly, China will have 221 cities with more than one million inhabitants by 2025 – compared with 35 in Europe and nine in the United States today.

Quite simply, that urban migration is responsible for creating the largest consumer class the world has ever seen – a middle class greater than the entire population of the United States.

Retail sales in China are estimated to have risen about 21% in 2008, according to the Ministry of Commerce. And now that weakness in the global economy has dented exports, the government is making an even greater effort to boost domestic consumption.

That’s why Money Morning Contributing Editor Horacio Marquez likes China Life Insurance Company Ltd. (ADR: LFC).

China Life is experiencing continued growth for reasons unique to government regulations.  Without a social security system, Chinese consumers must fund their own retirement – one reason the Chinese save an amazing 35 cents of every dollar they earn.

Also, China Life’s investment portfolio hasn’t been hit by the market meltdown, because government regulations prevented the company from owning subprime-related mortgages and securities. With 43% market share, Moody’s Corp. (MCO) expects premiums to grow between 30% and 40% in 2008.  And right now, only 3% of China’s consumers own life insurance, leaving plenty more room for growth.

Another company worth looking at is China Mobile Ltd. (ADR: CHL).

With 443 million subscribers, China Mobile is the dominant provider in the world’s largest mobile telecom market.  And in terms of growth, an additional 3 million to 4 million consumers become mobile phone subscribers in China each month, according to the Chinese Ministry of Information.

The company’s earnings per share (EPS) increased 31% in the first three quarters of 2008 and China Mobile stock yields a healthy 3.2%.

Now, the mobile services giant is in talks with Apple Inc. (Nasdaq:AAPL) to introduce the iPhone to the burgeoning Chinese market.  And with the global slump hurting smaller players, it’s on the hunt for acquisitions with attractive valuations in emerging markets.

Soaring Energy Demand = Growing Profit

Despite a slight slowdown in the economy, China’s energy appetite continues to grow at a ravenous pace. And even though the country is building one coal-fired power plant a week, China’s unable to keep up with exploding demand.

China’s electricity consumption rose 5.2% in 2008 and investment follow.  A total of $84 billion (576 billion yuan) was invested in the sector in 2008 – a 1.52% over to 2007.  Power grid spending rose 17.69% to $42 billion (288.5 billion yuan).

As with other forms of infrastructure, China plans to up its investment in electricity over the next several years. China has already announced $29 billion in new energy projects, including a new natural gas pipeline, construction of 10 new nuclear power plants, and a new coal mine, set to produce 14 million tons of coal a year.

Here are two solid profit plays on the new infusion of cash:

Money Morning Investment Director Keith Fitz-Gerald likes Yanzhou Coal Mining Co. Ltd. (ADR:YZC).

China burns more “black rock” than the United States, Japan and Europe combined, and this company is one of China’s biggest coal suppliers. It produces lots of high-grade, low-sulfur coal, which burns cleaner and fetches a premium price.  The company also boasts profit margins of 22% in an industry where the margins average about half that amount.  For the first three quarters of the year, the company posted profits that were up 364% from a year ago.  This kind of growth, in a stock that’s trading at three times earnings, is a big time potential bargain – especially given its dividend yield of 4.3%.

Both Fitz-Gerald and Hutchinson recommend like Huaneng Power International Inc. (ADR:HNP), as well.

Huaneng is the largest utility in China, and is a virtual lock to benefit from growth in any form. It owns 16 operating power plants, and has controlling interests in 13 others. As a state-owned enterprise, it has the contract to produce the power for the entire eastern region of China, including Shanghai and Beijing.  Although it’s been generating losses lately due to high coal prices, the power company is likely to increase output and profits with any economic expansion.

If you’re leery of investing in individual stocks you might want to look at the Templeton Dragon Fund Inc. (NYSE:TDF). Over 80% of the closed-end’s assets are directly invested in China. And with roughly 50 positions, it provides ample diversification.

PS. This is the tenth installment in Money Morning’s “Outlook 2009” series, which looks at the global investing outlook for the New Year.
Source: China’s Red Dragon Turns Financial Crisis into Opportunity

This from Money Morning:

The $585 billion (RMB4 trillion) stimulus package that China announced Sunday may or may not help China’s economy. But with investments in low-income housing, water and energy projects, airports, disaster relief – and $100 billion for new railroads – over the next two years, this financial package provides oodles of opportunities for investors.

There is no doubt China needs infrastructure. Now the world’s fourth-largest economy, China has grown so rapidly that many of its services are stretched beyond belief. Equally, it is not so certain that the government knows what infrastructure to build, or that it can be built, without hopeless corruption. For instance, the Three Gorges Dam became a global watchword for waste and environmental destruction, while the fancy toll roads built between major cities are still very underutilized, because the tolls are too high for all but the rich. In the stimulus package, more than $100 billion is earmarked for railroads, a seemingly 19th Century priority at the beginning of the 21st.

(As Money Morning reported in a market analysis story this past summer, General Electric Co. (NYSE:GE) said it expects its business in China to double to $10 billion a year by 2010 – making that country a key element of the struggling U.S. industrial giant’s strategy to offset its struggles here in its home market by pursuing business in faster-growing markets abroad. GE also announced that it would be providing China with 300 of its most modern locomotives between now and 2010).

Even if the Chinese economy had slowed sufficiently to warrant stimulus, there was a better way of getting it. For a decade, China has enjoyed unbalanced growth, with excessive rates of savings and investment and inadequate consumption. This has resulted in the huge buildup of Chinese foreign exchange reserves, now more than $1.9 trillion –the largest in the world, both in relation to the economy, and in real terms.

To rebalance the economy and maintain growth, China actually needs more domestic consumption. While Bush-style cuts in high-level income taxes would benefit only the “Chuppies” – China’s newly emergent yuppie class – there are other taxes that bear heavily on the economy and could usefully be cut.

The farmland usage tax, for example, levied at 13.6 cents to $1.36 (one to 10 RMB) per square meter in 1987, was late last year boosted to 68 cents to $3.40 (five to 25 RMB) – thus increasing what was already a huge imposition on the poorer farmers, whose margin above subsistence is very limited, only to be made even more so by such regressive taxes. Thus a Chinese government that truly had the welfare of its people at heart would have engaged in tax cuts, not grandiose public sector infrastructure projects.

There is considerable danger of such a massive Chinese infrastructure program leading to inflation. Assuming that China uses $585 billion of its foreign exchange reserves to fund it, increasing the domestic supply of Renminbi, this will increase its M2 money supply by almost 10%

However, The People’s Daily yesterday (Monday) stated that this massive financing package would have a positive effect on “cement, iron and steel producers.” The capital outlay should also be a boon for China’s trading partners: Not so much its three largest trading partners – Japan, South Korea and Taiwan – as they primarily manufacture components that are assembled in China for re-export to the West, or supply manufactured goods, which would benefit from a consumer-led spending surge, rather than this government-led stimulus.

However, suppliers of raw materials – which have already found the long Chinese boom to be a bonanza – can look to benefit further.

And that brings us to some possible profit plays that should rise with the tide of this $585 billion infusion:

• Anhui Conch Cement (Pink Sheets: AHCHF) is China’s largest cement producer – hence, it’s certain to benefit from a major infrastructure program of this kind. Be careful, however: It’s quoted only on the “Pink Sheets,” and is trading on 17 times earnings.
• China Railway Construction (Pink Sheets: CWYCF) is China’s largest construction group, with a special expertise in railroads. Again, it’s traded on the Pink Sheets, this time at 31 times earnings.
• Yanzhou Coal Mining Co. Ltd. (ADR: YZC) is an energy supplier that should profit greatly from the additional infrastructure investment. It’s much-better priced than the two predecessors, trading at only three times earnings and has an alluring dividend yield of 4.3%.
• Huaneng Power International Inc. (ADR: HNP) is a top China energy producer that’s been generating losses lately due to high coal prices. But it’s likely to increase output and profits with the economic expansion that should follow the massive infusion – and the 9.3% dividend yield is rather electrifying, as well.

But a big winner from China’s infrastructure boom (don’t forget, $100 billion in railroad investment) is Brazilian iron ore producer Vale (ADR: RIO), which has increased its prices to China twice in 2008, and that’s now actually holding back supplies while the Chinese market rebalances. China is a huge importer of iron ore, its imports will increase with heavy infrastructure investment, and Vale is the world’s largest supplier. Best of all: With a Price/Earnings ratio of 4.3 and a dividend yield of 4.2%, Vale’s shares are not at all expensive.

Source: Five Ways to Profit From China’s $585 Billion Stimulus Plan

William says every successful investor needs a China investing strategy, despite the fact that China’s benchmark index, the Shanghai stock index, is down 56% so far this year.

Following Jim Rogers’ bullish comments on China in a recent exclusive interview with Money Morning, Bill gives six reasons to invest in China and five solid China profit plays.

In an exclusive interview with Money Morning, global investing guru Jim Rogers said that giving up on that country now would be like selling all your U.S. stocks at the start of the 1900s – before America created massive wealth by evolving into a world superpower.

“I have never sold any of my Chinese companies,” Rogers said. “You know, selling China in 2008 is like selling America in 1908. Sure, let’s say the market goes down another 40% – so what! You look back over 100 years, you look back from the beauty of 1928, or even 1938 [in the depths of the Great Depression], and there is somebody who bought shares in 1908. He was still a lot better off having not sold in 1908.”

Even if the U.S. economy skids into a recession, China’s long-term growth outlook remains strong – and that’s after nearly 30 years of double-digit growth that country has already logged.

Here are some of the key points – as well as some profit plays – to consider:

First, China remains one of the strongest economies in the world. Even after China reduced its growth outlook, the country remains on track for an economic expansion of better than 9% for the year to come. We aren’t so naïve as to expect a straight path of uninterrupted growth. But neither do we expect a U.S. downturn to squelch the Red Dragon’s long-term growth prospects.

For broad exposure to China’s growth, consider the China Region Opportunity Fund (USCOX), managed by the San Antonio-based U.S. Global Investors Inc. (GROW).

Second, China remains awash in liquidity, with $1.68 trillion in foreign reserves. And much of that excess capital is being focused on the upside, particularly when it comes to boosting disposable income and then building brand awareness for its own products.

And now that liquidity is allowing the country to go on a global shopping spree, enabling its companies and its state-run sovereign wealth funds to pick up such choice assets at bargain prices. One beneficiary of such outside capital: Companies such as MGM Mirage (MGM), which is being positioned as a high-profit play on China.

Third, China’s markets are quickly becoming much “narrower.” Money is being reallocated from highly risky ventures into more-predictable enterprises. That’s an important trend for investors to track, for history shows time and again that these more-predictable ventures fare the best during uncertain, volatility-laced markets. One advantage that these companies have, believe it or not, is that they don’t have to tap into the credit markets at a time when credit is costly, or not available at all. Weaker companies won’t be able to get financing, even if it is available. Consider such potential “New Dragon” companies as online media player SINA Corp. (SINA) or fast-growing advertising play Focus Media Holding Ltd. (ADR: FMCN), for instance. As the economy becomes more “normalized,” consumers will increasingly need such products as insurance, so take a look at China Life Insurance Co. Ltd. (ADR: LFC).

Fourth, many of China’s companies are now reporting real profits. For decades, most Chinese companies operated on the slimmest of margins, with profits that were actually based on taxes or export-incentive “loopholes.” They were kept on life support with an endless stream of bank loans. All of this is being eradicated by Beijing. Money is being taken out of highly risky ventures, or the uncompetitive, state-run enterprises that are ridden with debt. In China, that capital is now being redeployed into the innovative, more-promising ventures that we refer to as the “New Dragons” – many of which are destined to rival the U.S.-based “Global Titans” as the dominant global brands and investor stalwarts of tomorrow. One New Dragon that’s already making a global splash is solar-energy player First Solar Inc. (FSLR). Also consider Huaneng Power International Inc. (ADR: HNP), the domestic China power producer that’s also getting involved in projects outside its home market.

Fifth, the still-weak U.S. greenback will make brand-name imports (both products and services) even more popular in China. And rapidly growing consumer income will give China’s consumers the cash to spend on such one-time luxuries as travel and tourism. One big beneficiary: The Boeing Co. (BA) of the United States, which says that China and other Asian nations will need $340 billion worth of new aircraft over the next two decades.

Sixth, look for companies that generate revenue “from” China, even if they’re not based “in” China. This is a great risk-management strategy: It’s a way for investors to profit from China, while enjoying the investor protections and regulatory oversight of such developed markets as the United States and Europe. The Global Titans are our No. 1 choice here. Many pay a dividend, as well.

If you’re seeking some solid, specific picks, some of the best ones to consider include PepsiCo Inc. (PEP), Diageo PLC (DEO), Yum! Brands Inc. (YUM), McDonald’s Corp. (MCD), The Coca-Cola Co. (KO), and a few others.

The bottom line is this: These days, and forever more, every investor has to have a China investing strategy. And while choosing to sit on the sidelines certainly qualifies as a strategy, remember this: Over the long haul, it’s probably not a profitable plan to follow.

P.S. The first part of this two-part story, Why Every Investor Should Have a China Investment Strategy, appeared in the Aug. 8 issue of Money Morning.

Source: How to Profit From A China Investing Strategy

• Citigroup Inc. (C) said yesterday (Wednesday) that it has agreed to pay $1.66 billion in claims to settle a dispute with creditors of the former energy powerhouse Enron. The settlement would resolve bankruptcy and fraud claims brought against Citi as a result of the 2001 collapse of Enron. “Today’s settlement marks an enormous accomplishment for the Enron Estate,” said John Ray III, president and chairman of the board of Enron Creditors Recovery Corp. “I am very proud of the value we have been able to recover on behalf of creditors.”

• Vale (RIO), the world’s largest miner of iron ore, said that talks to buy its Swiss rival Xstrata Plc (XTA) have failed and Vale will look at other potential takeover targets. If Vale had succeeded, the deal would have been one of the largest corporate takeovers in history, the IHT.com reported. Analysts had valued Xstrata at as much as $90 billion. “While Vale and Xstrata continue to believe that a combination of the two companies could realize significant value for both sets of shareholders, we have not been able to reach an agreement,” Mick Davis, Xstrata’s chief executive, said. He did not give a reason for the breakdown in talks, but the price is said to have been the main factor.

• Morgan Stanley (MS) halted the pending sale of its 34.3% stake in mainland brokerage China International Capital Corp. (CICC), yesterday (Wednesday), after offers came in low. Private equity firms TPG, JC Flowers and Bain Capital LLC had offered to pay $500 million for the stake. Morgan Stanley had hoped to get offers around $1 billion, the South China Morning Post reported.

• Amid slumping sales and investor pressure, Motorola, Inc. (MOT) said on Wednesday that it would split into two publicly traded entities in 2009. Analysts say the split will put the company in a better position to sell assets or negotiate a joint venture. Once the company that invented the cellular phone, Motorola has been losing its market to rivals such as Nokia Corp. (NOK) and Samsung Electronics.

• Huaneng Power International, Inc. (HNP) said yesterday (Wednesday) that it plans to spend $8.92 billion on expanding capacity by 2010 to meet the country’s growing demand for energy, Bloomberg reported. One analyst thinks Huaneng shareholders may suffer in the short term. “Huaneng Power’s profit may fall this year because of rising fuel costs, and the government is unlikely to increase the electricity tariffs. The year 2008 would be a tough year,” said Martin Wang, a power analyst with Hong Kong-based Guotai Junan Securities HK Ltd.

• The Senate Finance and Banking committees said they are reviewing the taxpayer-backed sale of Bear Stearns Cos. Inc. (BSC) to JPMorgan Chase & Co. (JPM), Bloomberg News reported yesterday (Wednesday). “Americans are being asked to back a brand new kind of transaction, to the tune of tens of billions of dollars,” Baucus said in a statement. “With jurisdiction over federal debt, it’s the Finance Committee’s responsibility to pin down just how the government decided to front $30 billion in taxpayer dollars” for the deal, Baucus said.

• Just days after a California judged ruled that Starbucks Corp. (SBUX) must pay $100 million in tips and interest to baristas who were forced to share tips with supervisors, a similar suit has been filed in Massachusetts. State law prohibits supervisors from sharing tips with waiters, bartenders and servers who work for less than minimum wage, The Associated Press reported. Starbucks plans to appeal the California ruling.

• Technology chip manufacturer Rambus Inc. (RMBS) received an important court ruling yesterday (Wednesday). The verdict was that there was no anti-competitive behavior by Rambus in its activities with a memory chip industry standards body, Rambus General Counsel Tom Lavelle, told Reuters via telephone. Rambus shares climbed $7.25, almost 40%, to close at $25.86 the day of the announcement.